Rethinking Trade and Investment for Asian LLDCs

Delivered at the High-Level Thematic Roundtable: “Harnessing International Trade and Investment Opportunities for LLDC Development” of the 2nd UN Conference on Landlocked Developing Countries in Vienna, Austria, 5 November 2014

To harness the opportunities and benefits of trade and investment, we must rethink our strategies and boost efforts as we adopt a new and enhanced Programme of Action for landlocked developing countries (LLDCs) for the decade 2014-2024.

Asian LLDCs have low trade integration. This is not caused by tariff protections as average applied tariff rates are low and 80 per cent and 90 per cent of their exports have zero duty access in developed country markets.

So why do we find low trade integration of Asian LLDCs, despite their being signatories to as many as a dozen regional trade agreements (RTAs)? Ironically, the trade of Central Asian LLDCs, for instance, with partners with whom they do not enjoy reciprocal trade preferences, still accounts for the majority of their trade. And the RTAs of the Commonwealth of Independent States, which predate the WTO-accession processes, are shallow and exclude services, investment or intellectual property protection clauses.

These factors, coupled with LLDC supply constraints; lack of economic diversification; limited penetration of global value chains and their weak infrastructure connectivity, have stifled the prospects for LLDCs to exploit the benefits of the global economy and the global trading system.

For the purpose of this session, I will recommend we focus on two areas to ensure that the future trading system is responsive to the needs of LLDCs.

One, we need to adopt a holistic approach to promotion of trade and investment to build LLDC competitiveness; and

Two, we need to enhance trade governance through regional cooperation to promote trade opportunities for LLDCs.

What do we mean by a holistic approach to trade and investment? This calls for driving long-term structural transformation that promotes LLDC economic diversification, leading to sustainable development. Besides securing market access, LLDCs should be geared to

  • Build stable trade capacity;
  • Increase efficiency of trade and production;
  • Remove behind-the-border barriers; and
  • Nurture the right enabling environment to attract foreign direct investment (FDI) with supportive transfer of technology, as well as dispersion of innovation.

Backed by these policies for increased LLDC trade, strategically sustainable trends also demand that we:

  1. Steer LLDCs away from high product, country and market concentration. This is critical as, for half of the Asian LLDCs, their top three natural resource-based exports, with little value addition, account for 64 to 93 per cent of total exports, and are subject to volatility of primary global commodity prices. Just two LLDCs account for more than half of all Asian LLDC merchandise exports, for example;
  2. Reverse declining trade openness, as measured by the ratio of trade to GDP, which has declined by almost half;
  3. Allow LLDCs swift access to WTO membership, to mitigate the risks associated with unilateral and bilateral trade preferential accords;
  4. Create an enabling environment to attracting more FDI flows to Asian LLDCs, in terms of stocks and flows as a share of GDP, which are lower than the Asia-Pacific averages;
  5. Promote innovation & entrepreneurial activity, for example by raising the share of regional patent applications; and
  6. Enhancing the low connectivity of LLDCs to allow them to better benefit from the gains and opportunities of regional and global trade.

Better trade governance, through greater regional cooperation, has the potential to enhance trade opportunities for LLDCs. The Economic and Social Commission of Asia and the Pacific (ESCAP) has been promoting regional cooperation to enhance South-South trade, investment and transfer of technology, while seeking a bigger role for regional Aid for Trade projects.

  1. Trade facilitation, pursued regionally by ESCAP, has the potential to reduce trade costs and improve trade efficiency. Among others, Asian LLDCs would benefit from implementing cross-border paperless trade, backed by a regional framework agreement on cross-border paperless trade facilitation.
  2. Regional Economic Cooperation and Integration, ESCAP is the only Asia-Pacific intergovernmental platform where LLDCs are well represented, and is promoting free trade, financial cooperation and the connectivity agenda to enhance intra-Asian trade and investment in these countries.
  3. Integrating better Aid for Trade is a more sustainable approach to improve economic and trade competitiveness, and to deal with shocks which affect trade. Recognizing this, ESCAP is working with our member States to facilitate better regional approaches to Aid for Trade, to mainstream in national planning externally funded cross-border infrastructural projects and raising awareness for LLDCs to deploy resources to promote economic diversification and creating an enabling environment to attract foreign inflows in globally and regionally integrated production and trading chains.
  4. LLDCs are late-comers to the success of global value chains (GVCs), which now account for almost one third of global exports. Entry into the game of GVCs will require LLDCs to turn their disadvantages into advantages, transforming their landscape by pursuing among others economic diversification; improving access to new technologies which mitigate geographical barriers; and creating a more enabling environment for foreign investment, with supportive infrastructure to enhance regional connectivity.

To conclude, I return to my main message: there is no short cut to adopting a holistic approach to integrating LLDCs in the global trading system. We must instead seek out freer market access whilst providing solutions to supply side constraints. This strategy is critical for Asian LLDCs achieving strong, sustained and inclusive trade-led growth.

I thank you.